The activist investor has gotten a bad rap lately, thanks to incidents including hedge-fund guru Bill Ackman’s disastrous effort to revive J.C. Penney. But there’s one operation that could desperately use the kind of shakeup usually generated by activist shareholders: The health-reform bureaucracy known as Obamacare.
President Obama’s landmark health-reform law is off to a difficult start, beset by technical woes that must make digital saboteurs envious. Millions of Americans have been unable to register for insurance through Obamacare’s primary portal, Healthcare.gov, as the site locks them out or personal information gets mangled en route to an insurance carrier. Technical experts predict the problems could last for weeks. “Nobody is madder than me,” Obama said recently, acknowledging the widespread snafus.
Presidential indignity won’t make the system work better, however, or help mend the program’s battered reputation. That’s where an activist shareholder would be able to help, if Obamacare were a private-sector enterprise vulnerable to investor pressure.
Three basic problems
The health-reform rollout seems to suffer from three basic problems. The first is ineffectiveness. The Obama administration says 19 million people have visited Healthcare.gov. Yet fewer than 500,000 have applied for coverage, which is a tiny take rate of less than 3%, and only for applications — not enrollments. So it appears that technical snafus are preventing millions from enrolling in the program once they've knocked on the door, which in business would be like blowing a gigantic sales lead. Given that 48 million Americans lack health insurance and the president hoped to enroll 7 million of them during the program’s first year, Obamacare is already way behind.
The law also suffers from a poor reputation that seems bound to get worse as the embarrassing snafus mount. Before Obamacare went live, its approval rating was a weak 40% or so, according to a variety of polls. Americans have been wary of the law because of the unpopular "individual mandate" that requires people to buy insurance, plus hyperbole from many Republicans and other critics claiming the law will kill jobs and wreck the whole healthcare system. The rollout should have been an opportunity to showcase Obamacare and prove it wasn’t nearly as bad as critics claimed. Instead, the program looks like amateur hour, validating critics’ complaints.
The third problem is there’s no public accountability for whatever has gone wrong. Obama putting the blame on himself is like a parent blaming himself when a child performs poorly on a test. Okay, fine, we appreciate the [false] modestly, but it does nothing to identify the core problems or mistakes that might have caused them. If you really want to fix a big problem and prevent it from happening again, you have to dig deep into what went wrong, even if that risks shaming somebody.
That’s the kind of thing activist investors are terrific at. Their job is usually to make as much money as possible, as quickly as possible, on a stock turnaround and a sale of shares at a much higher price than they paid. To raise the value of the target enterprise, they often buy enough shares to gain control or at least influence the board, install new management, and conduct radical surgery on the company until the core problems are fixed. The process can be rough and it doesn’t always succeed, but activist investors do tend to force results and keep CEOs honest.
An activist's influence
Here’s how that kind of influence could help Obamacare:
First, it would force the program’s managers to focus on performance above all else. That would mean fixing the websites and jammed hotline numbers ASAP and dispensing with worry about political blowback, butt-covering or whatever else plagues the program at the moment.
Second, it would help identify who’s responsible for the horrible launch instead of ascribing problems to the always-blamable and ever-vague political system. It’s not important to finger a fall guy; it is important, however, to figure out exactly where the rot is, and either replace the people responsible or change what’s not working. So far, the Obama administration hasn’t said which agency or contractor screwed up the launch. If an Ackman or Carl Icahn or Dan Loeb sat on the board of Obamacare Inc., we’d know.
Activist investors also represent fresh blood when they get involved, which creates the impression that a new sheriff is in town. The new regime doesn’t always succeed, but it usually gets started with the blessing of other investors and enjoys a kind of honeymoon period in which bold ideas get the benefit of the doubt. That alone can help instill the confidence needed to corral a flailing organization.
Obamacare isn’t a public corporation, of course, and as a partnership between the federal administration, state governments and dozens of insurance carriers, it’s not even a single organization that can be managed by one set of executives. Obama said recently that the government has recruited “some of the best IT talent in the entire country,” including private-sector experts, to debug the Obamacare site. More people are being hired to staff hotlines and community centers where the public can learn about the program.
Maybe it will work, and Obamacare will become a model turnaround effort. But if so, the people trying to convince us of the turnaround will be the same ones who told us at the beginning what a great program it would be — and were wrong.
Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.